Two studies on fuel choice in power generation

Sammanfattning: This dissertation consists of two studies, both related to the impacts of economic and political factors on fuel choice in electric power generation. The primary purpose of the first study is to estimate the degree of price-induced interfuel substitution between three fossil fuels in West European power generation. The problem is studied within two restricted flexible cost functions, a translog model and a Generalized Leontief model. The results show that both models generate reasonable short-run responses to changes in relative fossil fuel prices. In general the degree of short-run interfuel substitution is found to be substantial, a result that is partly explained by the large share of multi-fuel plants in West European power generation. In addition, by deriving the shadow price of capital from the Generalized Leontief cost function the long-run own- and cross-price elasticities of fossil fuel demand are presented. Overall, however, this approach is not able to produce empirically reliable long-run estimates. Finally, the empirical investigation also indicates that public policies and changes in system load factors have had significant impacts on fossil fuel choices in West European power generation. The main purpose of the second study is to explore what factors have been the most important in determining the choices between different electricity supply alternatives in Zimbabwe since 1980. In a first step the economic costs of the available electricity supply options are estimated and secondly these costs are contrasted with the actual choices made by the electricity authorities. It is shown that in the early 1980s the electricity supply choices in Zimbabwe were dictated by a self-sufficiency policy, and accordingly least-cost alternatives were rejected. Due to a new political environment, financial problems and pressures from the World Bank, the step towards least-cost choices was substantial in the 1980s and the 1990s, although not complete. This and the ongoing trend towards higher discount rates imply that thermal power, be it coal- or gas-fired power, probably will dominate future electric power investments in Zimbabwe.